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Kane, PA 16735

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With all the Tax Acts issued in the last several years, this is one change you may have missed. The Safe, Accountable, Flexible, Efficient Transportation Equity Act (2005 Transportation and Energy Act) increased the excise tax on propane to 18.3¢ per gallon, effective 10/1/06. At the same time, the Act provided for a 50¢ per gallon tax credit for each gallon of alternative fuel sold by a taxpayer for use as a fuel in a motor vehicle or motorboat, or so used by the taxpayer.

Congress recently enacted legislation providing for a 50¢ per gallon tax credit for companies using propane in forklifts and airport tugs. Although forklifts are normally exempt at the time of purchase from the federal excise tax on propane, they are still eligible to claim the full 50¢ per gallon credit for business use.

This credit could be of significant benefit to a warehouse or manufacturing operation using propane-powered forklifts. As an example, a warehouse operating four forklifts running approximately five hours per day would consume approximately 2,000 gallons of propane annually. At a 50¢ per gallon tax credit, this would amount to a $1,000 credit for the taxpayer, which is claimed on the taxpayer’s income tax return for that year.

To obtain the credit, the forklift user must first register with the IRS. This is accomplished by filing Form 637 with the IRS to register as an “Alternative Fueler.” We would be happy to assist you in the completion of this form or we can prepare the form for you.

The IRS indicates that it may perform an onsite inspection of taxpayers who file the Form 637 to assure they qualify for the credit. Once the registration is approved by the IRS, the business can file the claim for the credit with its annual federal income tax return.

Planning Pointer: The credit is available for fuels used in any period beginning after 9/30/06. Taxpayers will need to amend their 2006 tax returns to claim the credit for propane used from 10/1/06 until the end of the 2006 taxable year.